2017 (6) TMI 55 - AT - Service Tax

Scientific and Technical Consultancy Services - taxability - appellant received security deposit/advance payment from their clients for providing taxable service in future - Held that - it is not in the choice of the appellant about timing of the payment of service tax. In terms of Section 67(3) when a consideration is received towards a taxable service service tax on the same has to be paid. The appellants cannot take a plea that they will discharge service tax when they adjust the said advance amount as and when there is bill raised after provision of service. Such proposition will be against the legal provisions - demand sustainable. Extended period of limitation - Held that - receipt of amount has not been reflected fully in the statutory returns as is evident from the narration recorded in the show cause notice - extended period invocable. Penalties - Held that - penalties under both sections cannot be imposed. W.e.f. 10.05.2008 as a proviso has been added in Section 78 of the FA 1994 to state that if penalty is payable under this Section the provisions of Section 76 shall not apply for the period 10.05.2008 to 31.03.2010 penalty u/s 76 is not tenable and the same is set aside. Appeal dismissed - decided partly in favor of appellant as regards setting aside of penalty imposed u/s 76.

Summary

Issues:
1. Whether the demand for service tax on advances received by the appellant is sustainable.
2. Whether the penalties imposed under Sections 76 and 78 of the Finance Act, 1994 are justified.

Analysis:

Issue 1:
The appellant, an autonomous society providing "Scientific and Technical Consultancy Services," received security deposits/advance payments from clients for future taxable services during the period July 2005 to May 2011. The dispute arose when the Revenue demanded service tax on these advances. The appellant contended that the security deposits were eventually adjusted against the value of taxable services, leading to a delay in service tax payment. However, the Tribunal held that under Section 67(3) of the Finance Act, 1994, any amount received towards taxable services, before, during, or after the provision of service, is subject to service tax. The Tribunal rejected the appellant's arguments, emphasizing that the timing of service tax payment is not at the discretion of the appellant. The Tribunal also noted that excess payments or service tax demands unrelated to future services could be re-evaluated by the jurisdictional authorities. The Tribunal concluded that the appellant was liable to pay service tax on advances received for future services, dismissing the appellant's claims.

Issue 2:
Regarding the penalties imposed, the Tribunal found that penalties under both Sections 76 and 78 of the Finance Act, 1994 could not be imposed simultaneously for the period from 10.05.2008 to 31.03.2010. As per the proviso added to Section 78, if a penalty is payable under that section, the provisions of Section 76 shall not apply. Therefore, the Tribunal set aside the penalty under Section 76 for the specified period. However, apart from this modification, the appeal was dismissed on other issues, affirming the penalties imposed under the relevant sections for the remaining period. The Tribunal upheld the penalties imposed under Sections 76 and 78, except for the specified period, based on the findings of the lower authorities.

In conclusion, the Tribunal upheld the demand for service tax on advances received by the appellant, emphasizing compliance with Section 67(3) of the Finance Act, 1994. Additionally, the Tribunal modified the penalties imposed under Sections 76 and 78, setting aside the penalty under Section 76 for a specific period based on the proviso added to Section 78.